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Strategy meeting - 12 December 2023

The fifty-fourth meeting of the Strategy Board took place on Tuesday 12 December 2023 in the Boardroom, Angus Smith Building, 6 Parklands Avenue, Eurocentral, Holytown, ML1 4WQ.

Chair’s opening remarks

The Chair welcomed everyone to the meeting including Liz Maconachie and Karla Graham from Audit Scotland along with Kelly Leishman and Rosaleen Burke in attendance for the Annual Report and Independent Auditor Report.

Matters arising

The Clerk to the Board provided an update on the action note:

Action 161 – Meeting with staff members involved in dealing with the recent storms. This meeting took place on 30 November 2023 with Fran van Dijk and Craig Hume in attendance. Proposed closed.

Action 162 – Sea Lice Consultation Results. This item was on the agenda for the Agency Board meeting held on the 28 November 2023. Proposed closed.

Action 163 – Timing Change for Strategy Board and Audit Risk and Committee meeting, 12 December 2023. The timing of the meeting had been swapped and new calendar invites had been issued. Proposed closed.

Annual Report & Accounts – STRAT 11/23

The Chief Officer Finance introduced the paper and asked that it was noted that this was not just a Finance paper but reflects a cross-organisation effort. The year had challenges which included resetting the look of the paper (incorporating feedback from the Audit and Risk Committee and external auditors), working with a new set of auditors, Audit Scotland (robust auditors), whilst having to revalue SEPA’s assets which is a requirement every five years, along with a pension valuation which for the first time was in surplus, as well as the implementation of IFRS16.

The Chief Officer Finance thanked teams across the organisation who were involved in pulling the Annual Reports and Accounts together, including the Communications team for the rebranding and style of the document and the Business Strategy team for pulling together the front half of the report. Special thanks were noted in respect of Rosaleen Burke, Head of Finance, and the Finance team, who were involved in working with a technically challenging set of accounts.

The Chief Officer Finance advised that that this was an unmodified opinion and an unadjusted set of accounts. She then passed over to Audit Scotland to present their findings.

Independent Auditor Report, Opinion and Letter of Representation – STRAT 12/23 & STRAT 13/23

Liz Maconachie, Audit Scotland, advised that this was Audit Scotland’s first year as the new audit appointment, and that there had been changes to the Auditors Standards which required them to have a deeper understanding of the organisation and the issues, which took more time. She extended her thanks to everyone at SEPA who supported the audit process, especially to the Head of Finance, and the team at Audit Scotland who worked hard to pull together the report.

Audit Scotland advised that the cover letter contained the proposed Independent Auditor’s Report and highlighted the pleasure in acknowledging that it does have an unmodified opinion. The requested Management Representations have been received and have been uploaded for signing off after this meeting.

The Annual Audit Report contains the main findings from the audit and the conclusions of the wider scope. The Board noted that the main areas reviewed relate to financial management, financial sustainability, visual leadership, governance and use of resources. Within the report, Audit Scotland has confirmed that it has not undertaken any non-audit related work and set a materiality level at the planning stage which was revisited in the final accounts where only slight changes were made.

Exhibit 2 in the report has the key findings from the audit which related to Gauging Stations. One of the recommendations was to consider looking at a rolling programme of review for the gauging stations. The Board noted that this may not be the best solution and that there will be an interim evaluation undertaken where Audit Scotland will work with SEPA to review. It was also noted that the valuer had incorrectly valued anchor blocks which resulted in a £0.616m change in the net book value within the accounts. It was recognised that it would be helpful to have an exercise undertaken each year to look at the gauging stations to see if any should be added to the asset register.

In the wider work under financial management, it was highlighted that there was an underspend which relates to the recovery of debt that was previously written off. The auditors have reviewed this and are content that there is an effective financial management system in place with reports going to the Corporate Leadership Team (CLT), Audit and Risk Committee, and Board.

It was highlighted that slight improvements could be made in relation to bank reconciliations by ensuring that a journal listing is provided with details of who has raised and approved the journals with disposal certificates being updated to include the evidence of disposals. It was also advised that under financial sustainability, SEPA is no different from any other public sector bodies that they audit, and the recommendations provided are about preparing a medium-term plan to help with savings going forward. The Annual Operating Plan and Corporate Plan will help with preparations into 2023-24. It was also acknowledged that there is effective engagement with stakeholders as well as scrutiny and challenges from members and that Audit Scotland may attend future Board meetings to attain a better overall understanding of the organisation. Appendix 1 contains all recommendations and management actions.

The Chair asked if SEPA was substantially clear of the account’s qualification process as far as the audit is concerned. The Chief Officer Finance advised that last year’s unmodified opinion related to prior year’s figures (2021-2022) and the year before that (2020-2021) a Section 22 qualification, this has been lifted and there have been no material errors.

The Chair of the Audit and Risk Committee advised that the papers had been discussed at the Extra Audit and Risk meeting yesterday (11 December 2023) and the transparency and clarity of the management audits underpinning the work that has gone in to creating the report is a significant step in the right direction with providing the Board with information. As a result, this paper was approved at the Extra Audit and Risk Committee meeting for submission to the Board today.

The Chief Officer Finance advised that, for approval, the Annual Report and Accounts 2022-23 document will be issued from Audit Scotland via “Docusign” to SEPA’s Chair and CEO for signature. It will then be signed by Audit Scotland and issued back to SEPA for issuing to Scottish Government Sponsor Unit for laying at Scottish Parliament. It is expected that the document will be laid before the Scottish Parliament before the end of December 2023. Once this is confirmed SEPA will publish the document on its website in early January 2024.

The Board approved the Annual Report and Accounts 2022-23 and noted the external Auditor’s recommendations.

Annual Operating Plan (AOP)

The Acting Chief Officer Performance and Innovation provided a verbal update on the Corporate Plan and AOP. It was noted that both will be coming back to the Board in a more developed form in February 2024.

The Corporate Plan is having final amendments made to it and it was highlighted that there had been minimal feedback received from Scottish Government. The aim is to finalise the Corporate Plan in December 2023 and have a published version ready for sign-off by the Cabinet Secretary in February/March 2024.

The Board noted that slight amendments have been made to the performance measures but nothing significant. A copy of the Corporate Plan performance measures will be made available on Diligent Boards before it goes to the publishers (this will be the version sent to the publishers).

Action: Acting Chief Officer Performance and Innovation

Work is progressing in respect of the AOP with the Senior Leadership Team (SLT) looking at what the Corporate Plan’s performance measures, new statistics and priorities will look like under the AOP and how this is articulated down into team action plans. The Board will be updated on this work at its meeting in February 2024.

The CEO advised that it was important to keep the focus on the outcomes for the organisation and ensuring the reality of the actions and is delighted with the way the SLT has taken this forward.

The Board thanked the Acting Chief Officer Performance and Innovation for the update.

Procurement Annual Report – STRAT 09/23

The Chief Officer Finance advised that this report was also presented at the Extra Audit and Risk Committee meeting on 11 December 2023. The report is produced to a standardised Scottish Government template which SEPA completes to then become a public document. It was presented to the Board for noting before it goes to Scottish Government to extract the statistics out for publication.

The Chair of the Audit and Risk Committee advised that the Committee was pleased to see the report and was content with it coming to the Board today. The only issue raised was that the Audit and Risk Committee was uncertainty about whether it had seen this report before. It would be helpful to have a covering note with context alongside the paper.

It was discussed that such annual reports had gone directly to the Board previously and not to the Audit and Risk Committee. The Clerk to the Board advised that she would look back at previous papers to clarify.

Action: Clerk to the Board.

In response to a query on community benefit requirements, the Chief Officer Finance advised that the reason it is presented as zero is because this is a Government standardised template and SEPA does not have any contracts over £4m. However, SEPA expects its suppliers to be compliant with SEPA policies and as a result is looking for a way to capture this information and feed it into the annual performance report; this is something that the new Head of Procurement and Contract Management will be looking at going forward.

In response to a question on SMEs and engaging with the market, the Chief Officer Finance advised that much of SEPA’s purchases are in relation to specialised equipment. Craig Hume mentioned that there was a request for SEPA to attend a Community Building Event in Ayrshire and that the message relayed had been that SEPA could not attend, he felt that these types of events would be beneficial to attend to support businesses who are trying to work out how they can present a tender to compete against the Nationals. It was agreed that the Clerk to the Board and the Chief Officer Finance would discuss further offline.

The Board suggested SEPA avoid using phrases like “environmentally friendly” as there is very little that is environmentally friendly in the business world.

The Board noted the Annual Procurement Report 2022-23.

Charging Scheme Consultation – STRAT 10/23

The Chief Officer Finance advised that the paper had been brought to the Agency Board meeting on 26 September 2023 where it was agreed that on completion of the three consultations (Emission Trading Scheme (ETS), Transfrontier Shipments (TFS) and Reservoirs) it would be brought back to the Board for approval then forwarded to Scottish Ministers for sign off.

It was highlighted that there was nothing contentious within the report, there was however some “push back” on Reservoirs, but this was to be expected due to certain reservoirs being previously owned by local authorities who transferred them to local fishing clubs and communities who were not expecting extra charges, however the increased charges were required to enable SEPA to recover costs.

In response to a query on why there were no responses to the Emission Trading Scheme consultation, the Chief Officer Finance advised that she could not comment on whether this was usual or not as she did not know the history, however SEPA had worked with the leads in that area prior to the consultation and there were no concerns raised; SEPA would have been surprised if there were responses given due to the work which had been done prior to the consultation.

In response to a question about whether SEPA is at the point where it is fully recovering the charging scheme costs, the Chief Officer Finance advised that she was confident that SEPA is recovering the charges as per the legislation and is working with the Integrated Authorisation Framework (IAF) team to help draw out more efficiencies. It was acknowledged that there is still work required to look at where SEPA is over-recovering and under-recovering in applications.

The Board approved the Charging Scheme Consultation Paper.